Over the past few years, I’ve had the chance to speak with and assist many business owners who are thinking about succession. What I’ve noticed is that a growing number of them are considering Employee Stock Ownership Plans (ESOPs) as a practical and meaningful way to transition their companies. For many independent distributors, the ESOP model provides a balance that other exit strategies cannot, rewarding long-time employees while keeping the company's culture, customer relationships and values intact.

One common theme I’ve seen is that owners who choose ESOPs are motivated by more than just financial outcomes. They want to ensure that the legacy they’ve built continues after they step away. For many, this feels more aligned with their values than selling to a private equity group or a large strategic buyer.

Deciding whether an ESOP is the right fit depends heavily on the strength of the company’s leadership team. Companies with clear management depth and a collaborative culture tend to be the most successful. If an owner is still handling everything personally, the transition becomes harder because an ESOP relies on a strong team to carry the company forward. When that team is already in place, the ESOP process is much smoother.

In my experience, one important guideline for determining ESOP readiness is what I call the “40–40 Rule.” While every company is unique, ESOPs tend to make the most sense for businesses with at least $40 million in revenue and roughly 40 or more employees. Below this threshold, the administrative costs, ongoing compliance requirements and financing structure can outweigh the benefits. Companies that meet or exceed the 40–40 benchmark typically have the scale, stability and organizational depth needed to support a successful ESOP transition.

Owners usually weigh an ESOP against two alternatives: selling to an outside buyer or completing an internal management buyout. While those options can work well in certain scenarios, they often come with tradeoffs that conflict with what many long-time owners want.

A third-party sale may bring changes that impact the company’s identity or employees, while a Management Buy Out concentrates ownership among just a few people. Owners who want broad employee participation often lean toward an ESOP.

Every ESOP transition comes with challenges. From what I’ve seen, the biggest early hurdles involve communication and setting expectations. Shifting from a single-owner structure to employee ownership requires employees to understand how the ESOP works, how value is created and what it means for their roles. Companies that take the time to clearly communicate and educate their team tend to see stronger engagement and smoother adoption.

Typically, the ESOP process takes between nine and 18 months from initial exploration to closing. The timeline largely depends on having the right advisors involved early, such as valuation experts, legal counsel and lenders who understand ESOPs. I’ve seen situations where the process drags on simply because the company had to switch advisors midway, so choosing the right team upfront makes a real difference. Choosing the firm that can effectively transition and educate the company is key.

Ultimately, companies considering an ESOP need to take an honest look at their leadership and culture. The structure works best when there is trust, alignment and a shared commitment to the company’s future. Owners should take the time to understand the financial and operational aspects of the transition and be prepared to communicate clearly with their employees. When those pieces are in place, an ESOP can be a powerful way to reward the people who built the business and ensure that its legacy continues for generations.